Strategic Implementation and Planning Assignment 3 PDF

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Crafting and Executing Strategy ,assignment three...

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Sherri Edwards, MBA Student # 8447 Strategic Implementation and Planning Assignment 3

1. According to Illustration Capsule 3.1 on p. 72, which companies comprise the strategic group of firms to which Cracker Barrel belongs? A: The companies which comprise the strategic group of firms to which Cracker Barrel belongs are Cracker Barrel, Red Lobster, and Golden Corral. These are located in the middle of the strategic group map, being found in the moderate range for “Price/Service/Ambience” on the Y-axis in the chart and found also in the middle in “Geographic Coverage” on the X-axis in the chart, with many US locations. Why is the circle containing Applebee’s, Chili’s on the Border, and TGI Fridays larger than Panera Bread Company’s circle? A: The circle containing Applebee’s, Chili’s On The Border, and TGI Fridays is larger than Panera Bread Company’s circle because the circles are shown in the chart roughly proportional to the sizes of the chains, based on their revenues (Thompson, 2018 p. 72).

2. What are the strategically relevant components of a company’s macro-environment? A: Strategically relevant factors are those which are important enough to have a bearing on the decisions the company makes about its long-term direction (Thompson, 2018 p. 48). PESTEL is an acronym which stands for the six principal components which make up the macro-environment. The six strategically relevant components of a company’s macro-environment can be found using PESTEL analysis:  Political factors  Economic conditions (may be local to global)  Sociocultural forces  Technological factors  Environmental factors  Legal/regulatory conditions 3. What are the seven key questions which form the framework of thinking strategically about a company’s industry and competitive environment? A: The seven key questions which form the framework of thinking strategically about a company’s industry and competitive environment are:  

How does the state of the macro-environment stand to impact the company? What strong competitive forces are industry members facing which may adversely affect profitability?

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Sherri Edwards, MBA Student # 8447 Does the presence of complementors and any possibility of cooperative actions stand to positively impact the company’s forecasts? What are the prevailing forces which are driving industry change, and what impact will these forces have on competitive intensity and industry profitability? What market positions do industry rivals occupy—who is strongly positioned and who is not, who has a stronger market position? Will having a strong market position stand to change over the course of time competing with rivals? What are the key factors of industry success and how well does the company meet these factors? 4. Identify and briefly explain any five factors that lead to strong bargaining power on the part of suppliers. A: Five factors that lead to strong bargaining power on the part of suppliers are those of: A. Market Dominance – as seen in the case of Microsoft, when a supplier can use their dominance to force manufacturers to pay premium prices and even to also sway the manufacturers into using only their parts. This can lead to anti-trust lawsuits (Thompson, 2018 p. 60) B. No Good Substitutes – when there is nothing else a company can substitute; the supplier maintains a higher bargaining power. C. High Cost of Switching Suppliers – when the cost to change suppliers is prohibitive for various reasons, the supplier can uphold having robust bargaining power. D. Not a Big Seller – opposite of market dominance, when the item being supplied does not account for a large fraction of what the supplier provides, the supplier is able to hold the line on it’s bargaining power. E. Short Supply – when the item being sought is in short supply, the supplier can maintain stronger bargaining power. 5. Assume a firm is at a cost disadvantage with rivals because its internal costs are higher than rivals. Identify five strategic moves that it can make to restore cost parity. A: Five strategic moves that a firm is at a cost disadvantage with rivals can make to restore cost parity include the following: A. Helping drive down costs in the company’s supplier(s) value chain system, by working collaboratively with suppliers in managing supply chain activities (Thompson, 2018 p. 103) B. Pressuring suppliers for lesser prices.

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Sherri Edwards, MBA Student # 8447 C. Working closely with distribution allies to perform value chain activities in mutually beneficial ways that reduce costs. D. Swapping to lesser priced substitute parts. E. Integrating the supplier into the design process in order to lessen defects in supplier provided parts and materials, thus leading to higher quality and lower costs due to less waste. 6. In doing driving forces analysis, is it sufficient to simply identify the driving forces that are operating to alter industry and competitive conditions? Why or why not? A: In doing driving forces analysis, there are three steps which needs to be done: 1. Identify what the driving forces are 2. Evaluate if the drivers of change are, overall, working to make the industry appealing or not. 3. Determine what strategy changes are needed to prepare for the impact of the driving forces (Thompson, 2018 p. 67). Therefore, no, it is not simply enough to identify the driving forces that are operating to alter industry and competitive conditions. This is because if this was all that was done, it would not be an analysis, rather it would just be an identification of the forces which were operating. The remaining steps of the analysis are just as necessary for the analysis to be complete.

7. Briefly discuss the meaning and significance of each of the following terms: a. SWOT analysis – a tool for examining a company’s overall situation, SWOT stands for examining a company’s Strengths, Weaknesses, their market Opportunities and external Threats. Considered the simplest and most easily applied tool for crafting strategy to capitalize on strengths, minimize weaknesses, capture opportunities, and defend against competitive and macro-environmental threats. b. core competence – a skillfully done internal activity which is integral to the company’s strategy and is also typically distinctive to the company. This differs from simply a competence in that the competence is simply a true capability, whereas a core competence is a competitively valuable strength. c. distinctive competence – a competence within a company which has exceeded merely being an activity which is performed well and moved into being a core capability which is superior to that of its competitors. d. company value chain – all the myriad of activities which a company undertakes in the process of producing, marketing, delivering, and supporting its product and/or service(s). The term value chain is so called because the fundamental purpose of a company’s activities is ultimately to “create value for buyers”. (Thompson, 2018 p. 99).

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Sherri Edwards, MBA Student # 8447 e. activity-based costing – a method used in accounting/by accountants to ascertain the costs of accomplishing each value chain activity. To which degree the activities are broken down depend upon how valuable knowing the cost of the specific activity each activity is. f. benchmarking – another analytical tool used in determine if a company’s costs and customer value proposition are competitive, benchmarking involves analyzing for comparison the company’s costs activity by activity against the cost of key rivals, in attempt to learn which internal activities are costing more or less than the competition. 8. Prepare a brief analysis of the coffee industry using the information provided on the industry trade association websites. Of the list of macro-economic factors found in Table 3.1 on p. 50, which do you think might be strategically relevant for this industry? On the basis of information provided on the trade association websites, draw a five forces diagram for this industry and briefly discuss the nature and strength of each of the five competitive forces. What factors are driving change in the industry? A: Trade associations are noted to play an integral role within a specific industry. A brief analysis of the coffee industry firstly finds that there does exist a National Coffee Association (NCA), which has been in business since 1911, and is the main market research body which also does lobbying and provides consumer information for the coffee industry. The NCA also holds a National Convention, which is upcoming in March of 2020 in Austin, Texas. Membership includes more than 90% of all US coffee commerce, and includes coffee growers, roaster, retailers, importers/exporters and wholesaler/suppliers. A report is published annually by the NCA on coffee consumption in the United States. Other trade associations include the Specialty Coffee Association (SCA) and smaller ones such as the Pacific Cost Coffee Association can be found regionally or formed for/with a specific purpose or location in mind, as is the case in the Green Coffee Association or the Hawaii Coffee Association. The market overview for coffee in the US is forecasted to grow 8.1% over the next 5 years. Coffee is noted to be one of the most consumed beverages in the country, with almost 2 cups per day consumed per coffee drinker. Coffee can also be found in the news due to Prop 65, which is a law within the State of California requiring cancer warnings on many items mandated by the State, and for which coffee has recently been given the formal recognition that coffee should not carry a “cancer warning”. This hopes to eventually resolve a lawsuit which has been winding its way through the courts for almost a decade now. Market research is done by the NCA and reports on Nation Coffee Data Trends for 2019, as well as Consumer Insight reports, are available. Webinars on all thing’s coffee can also be found, for NCA Members only. Membership in the association is highly encouraged.

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Sherri Edwards, MBA Student # 8447 From the list of macro-economic factors, legal and regulatory factors might be strategically relevant for this industry, due to the noted Prop 65 issue, wherein coffee had been incorrectly designated as a carcinogen by the State of California but has now been cleared of any links to cancer. The need to correct that confusing, incorrect message is great, with California having a full 10% of the entire country’s population. Until the State gave the all clear, many coffee shops hung signs warning of “cancer” if these products were consumed, due to the regulatory laws requiring such posted signage. A five forces diagram for this industry shows that due to current market saturation and established brands in this space, new businesses looking to enter the industry will find higher barriers to entry. In the chart below, one can see the nature (lower case) and strength (UPPER case) of each of the five competitive forces in this industry: Threat of substitute products/services NOT HIGH NOR LOW THREAT Consumer loyalty to brand coffee is high

Supplier LOW THREAT High cost to entry Supplier dependency on US market

Contention among present competition HIGH THREAT Fixed costs are high Industry growth is sluggish Market share is unequal

Buyers SOMEWHAT LOW THREAT Low switching costs Brand name impact

Threat of new rivals LOW THREAT Established brands High cost to entry

The factors which are currently driving change in the coffee industry include those of increasing coffee drinking combined with an increasing demand for ready to drink or gourmet types of coffee and new specialty coffee beverages such as iced coffees, which in turn lead to changing customer drinking patterns.

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Sherri Edwards, MBA Student # 8447 9. Using the financial ratios provided in Table 4.1 on pp. 85 – 87 and the financial statement information for Costco Wholesale Corporation on pp. 115 - 117, calculate the following ratios for Costco for both 2013 and 2014: a. Gross profit margin - calculated as sales revenues – cost of goods sold, / sales revenues i. 2013 – 12.56% ii. 2014 – 12.59% b. Operating profit margin- calculated as sales revenues – Operating expenses, / sales revenues i. 2013 – 2.90% ii. 2014 – 2.85% c. Net profit margin – calculated as Profits after taxes / sales revenues i. 2013 – 1.96% ii. 2014 – 1.85% d. Times interest earned coverage – calculated as operating income / interest expense i. 2013 – 30.84% ii. 2014 – 28.49% e. Return on shareholders’ equity (ROE) – calculated as Profits after taxes/total stockholders’ equity i. 2013 – 18.82% ii. 2014 - 16.72% f. Return on assets (net) – calculated as profits after taxes / total assets i. 2013 – 12.8% ii. 2014 – 11.7% g. Debt-to-equity ratio – calculated as total debt / total stockholders’ equity i. 2013 – 177.89% ii. 2014 – 166.69% h. Days of inventory – calculated as Inventory / (cost of goods sold/365) i. 2013 – 31.3 (rounded) ii. 2014 – 31.3 (rounded) i. Inventory turnover ratio – calculated as cost of goods sold / inventory i. 2013 – 11.64 ii. 2014 – 11.64 j. Average collection period – calculated as accounts receivables / average daily sales i. 2013 – 3.56 (rounded) Page | 6

Sherri Edwards, MBA Student # 8447 ii. 2014 – 3.72 (rounded) 10. Panera Bread operates more than 1,900 bakery-cafes in more than 45 states and Canada. How many of the four tests of the competitive power of a resource does the store network pass? A: The four tests of the competitive power of a resource are those referred to as VRIN tests for sustainable competitive advantage. VRIN stands for Valuable, Rare, Inimitable, and Nonsubstitutable. Valuable: Panera bread’s resources and capabilities are competitively valuable in that they can use their resources and capabilities to offer high quality food, served quickly, at a lower cost point. Rare: Their resources and capabilities are rare in that they bake, deliver, and can serve, fresh baked bread each day, almost as fast as one can order it. Reproducing this capability would be hard to do. Inimitable: Panera’s fresh baked bread-to-store model, as well as it’s number of stores across the US located in high-end open-air strip malls and standalone locations, makes them difficult to imitate. The cost to do so would be high. Nonsubstitutable: With the upper end locations, homemade bread, free provided wifi, it would be difficult for a new entrant or competitor to substitute products and services to pull competition away. Using general knowledge of this industry, perform a SWOT analysis. Explain your answers. A: Given a general working knowledge in the area of casual dining, Panera Bread has these Strengths, Weaknesses, Opportunities and Threats (SWOT): Strengths: Investment in technology - Their use of and investment in technology to automate ordering and receipt of food through a smartphone app, online, or at a self-serve order kiosk station inside the store, keeps orders and customers flowing, and avoids waits and backlogs. Healthy Eating - with a robust salad menu and offerings which don’t include any artificial ingredients, Panera attracts those that want to eat healthy, yet good tasting food. Weaknesses: Loss of focus – The same focus on technology which is a strength, may be or become a weakness if overused/overspending on technology causes a loss of focus on the core business, which is selling healthy food. Dependency on fresh bread supply chain – Panera only has 20 break making facilities, to service over 1900 stores across 46 states and Canada, so supply chain demands, and forecasted expansion must be managed carefully.

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Sherri Edwards, MBA Student # 8447 Opportunities: Expansion into other countries -as noted, Panera is currently only doing business in the US and Canada. Expansion to other countries which have similar healthy eating desires is a large opportunity for the company. Expanding menu to incorporate more working families – with both mom and dad working in many homes, and extra-curricular activities in sports and academics taking up evenings and weekends, more and more people want a better eating choice, so continued expansion of the menu in areas where there these demographics are in play is a smart move to up sales. Threats: Existing and new competition are always going to be a threat when selling a commodity which can’t be patented or otherwise protected.

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Sherri Edwards, MBA Student # 8447

Sources: Thompson, A. A., Peteraf, M. A., Gamble, J. E., & Strickland, A. J. (2018). Crafting and executing strategy: the quest for competitive advantage: concepts and cases. New York, NY: McGraw-Hill Education. National Coffee Association. (n.d.). Retrieved from http://www.ncausa.org/. United States Coffee Market: Growth: Trends : Forecast. (n.d.). Retrieved from https://www.mordorintelligence.com/industry-reports/united-states-coffee-market.

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